FDIC

Sheila Bair, the chairman of the FDIC, today spoke on regulatory reform. Her comments were nothing surprising or new. She called for the creation of a resolution mechanism for large failing institutions, more sharing of information between regulators, and strengthening consumer protections.

Toxic assets will be sold with a AAA guarantee from the US government under one of the options put forward by the Federal Deposit Insurance Company.

The FDIC has more than $36bn in toxic assets on its books, ready to sell. And apparently the corporation is seeking a decent return. Scared?

There appear to be two main differences between this plan and the one that nearly brought down capitalism: first, it’s the US government issuing the guarantee and not some special legal entity that can conveniently go bankrupt. Phew. Oh no, hang on. The second difference is that we know most of these assets are toxic, or worth less than initially thought. At least the first time round, they were bought in good faith. Read more

In the wake of the financial crisis, the Federal Reserve has made much of the dangers of using interest rates to “lean against” asset bubbles, such as the one in the housing market whose collapse brought the US economy to the brink. Fed governors have implied that this was their only practical tool. (There have been quieter on the influence they may have wielded by warning of the bubble). The problem, several Fed governors have said recently, lied in a failure of regulation.

In short, no. The new proposal would shift some responsibility for bankers’ risk-taking onto bank management. And that idea is bang on time.

Banks offering big bonuses for high risk trading would have to pay more to insure deposits, under a proposal passed by a US regulator yesterday. Banks with more cautious pay policies, such as bonus clawbacks, would pay less. Read more

Thanks to Big Picture blog, which keeps us posted on the weekly death count in the world of banks. The same data, viewed as a cumulative chart, shows an upward trend in US bank failures. Indeed, for the geeks among you, the bank failures (red line) so closely mirror the exponential trendline (black), the R squared is 0.9948.

That does not mean, of course, that bank failures will continue along their current exponential path. But it does mean they haven’t slowed down in any significant sense – yet.

Russia has lowered rates and Vietnam has raised them. This is the ninth cut since April for Moscow – they are trying to slow the appreciation of the rouble and revive lending. Hanoi has devalued the dong by more than five per cent and raised rates by a full percentage point in an effort to curb inflation. The Vietnamese move is not the start of the mooted currency war.

I have a good deal of sympathy for Sheila Bair’s idea that secured creditors should take a hit when a financial institution fails. But there are two problems with her proposal. First, it would kill the triparty repo market, where lenders assume secured really means secured. Second, it is not clear to me why we should want a standardised 20 per cent haircut. Better to estimate the haircut in normal bankruptcy and apply that to any special resolution process.

Moreover, it looks to me like the most promising way of getting some effective discipline from bank creditors is to focus on the more junior categories of debt – sub-debt and potentially reverse convertibles (I like the idea of requiring banks to hold debt that converts into equity when certain thresholds are breached).

Swedish finance minister prepares Swedish banks for Latvian collapse. Gold may be heading to $1,500 a troy ounce, with many investors confused why; and has the G20 already broken its pledge to transparency and a rebalancing of power? Read more

“Well run” emerging economies will be encouraged to hold less in foreign reserves with the IMF acting as a giant insurer, under a new proposal. Unemployment is set to break through 10 per cent in the US, and stay there for quite some time Read more

The Money Supply team

Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Claire Jones is the FT's Eurozone economy correspondent, based in Frankfurt. Prior to this, she was an economics reporter in London. Before joining the Financial Times, she was the editor of the Central Banking journal. Claire studied philosophy and economics at the London School of Economics. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Sarah O’Connor is the FT’s economics correspondent in London. Before that, she was a Lex writer, covered the US economy from Washington and the Icelandic banking collapse from Reykjavik. Sarah studied Social and Political Sciences at Cambridge University and joined the FT in 2007. RSS

Ferdinando Giugliano is the FT's global economy news editor, based in London. Ferdinando holds a doctorate in economics from Oxford University, where he was also a lecturer, and has worked as a consultant for the Bank of Italy, the Economist Intelligence Unit and Oxera. He joined the FT in 2011 as a leader writer. RSS

Emily Cadman is an economics reporter at the FT, based in London. Prior to this, she worked as a data journalist and was head of interactive news at the Financial Times. She joined the FT in 2010, after working as a web editor at a variety of news organisations.
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Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS

Ben McLannahan covers markets and economics for the FT from Tokyo, and before that he wrote Lex notes from London and Hong Kong. He studied English at Cambridge University and joined the FT in 2007, after stints at the Economist Group and Institutional Investor. RSS